Property development guide part 7 – Researching the perfect site

In his continuing series of articles, Bryce Yardney, Property Development Specialist at Metropole, takes readers on a step by step journey through the property development process.

Once you understand the importance of securing a development site in the right location and you have the big picture firmly in mind, including your target market, it’s time to move from theory into practice.

Finding the perfect piece of dirt to suit your project is going to take time, patience and a lot of homework.

Rest assured though, the financial rewards for all of this hard graft are outstanding once you find the right site.

Remember your aim in conducting this research is to be smart and stay ahead of the market.

One of the keys to sourcing good development properties at a fair price is to build up a network of people who are well versed on the local market because they work in it on a daily basis.

Let them know you’re on the lookout for a development site and the specific requirements you have.

The team at Metropole have been helping investors and developers find their perfect properties for decades now.

Why not contact Metropole and make consultation with one of their Property Strategists.

Buyers agents with a sound local knowledge can also be invaluable allies when sourcing a good site and can assist with the negotiation process to ensure you pay below market value for your property.

Make sure they know the area thoroughly and understand exactly what you are hoping to achieve with your development project.

It’s also a good idea to touch base with the planning department at the local council, as they can provide you with an overview of any future planning or zoning changes in the area.

Obviously it doesn’t hurt to get to know the people who could have the final say as to whether or not your proposed development gets off the ground.

Of course as with any market research you conduct into a business venture of a sizeable magnitude (as a property development is), one of the most important steps is pounding the pavement.

Drive around and have a good look at the areas where you know there might be opportunities.

Making your profit when you purchase

While often said you make your money on a project when you buy the property, it’s not because you buy cheaply, it’s because you buy the right property in the right location.

However with the development site is also critical not to overpay, so it’s important to conduct a detailed feasibility study to determine the maximum price you can afford to pay and still be left with a financially viable development.

You must avoid emotion, making your purchase based solely on its financial viability as a development site and its adherence to a strict checklist of pre-determined criteria, such as zoning and planning allowances, suitability to your project, desirability of location, etc.

Unless the potential property satisfies all of the points in your checklist or you can buy it at the right price to make up for any potential problems, move on to the next site.

You should also remember to take every cost into account; it’s not just the price tag of the site in question, but the stamp duty payable on purchase as well as all of your legal and conveyancing fees and of course all the preliminary costs associated with obtaining development and building approvals.

These added extras will impact your bottom line and need to be accounted for in your site cost analysis and pre-purchase feasibility.

Ultimately, the type of property you look for will depend on the sort of development you intend to undertake.

Do be cautious though of “tricky” sites that may require a lot more work and/or money to develop.

These include properties with restrictions such as heritage overlays that may restrict certain development or design elements, any land where change of use or planning consent must be sought and if renovating, properties with extensive structural problems that can be costly and time consuming to repair

A smart investor wouldn’t buy a house without a building and/or pest inspection to identify any hidden costs, so why would you purchase a development site without expert advice on the optimum development potential for the site?

How often have you seen an advertisement for a development site for say three units followed by the phrase, “S.T.C.A.” (Subject To Council Approval), only to ask the agent what their opinion is and have them tell you that you might get three units on the site, but they are unsure of the planning laws?

The truth is that they are simply not experienced enough to give you a clear indication of the development potential of any prospective site.

I know many wannabe developers who have headed off to the Council to make enquiries with the planning staff, only to be told that unless they lodged an application, council can’t really comment on optimal development potential.

Worse still, they may receive conflicting advice from different Council representatives and sometimes it can take a couple of weeks before council will answer your questions.

Unfortunately this is a typical example of how development sites are marketed, and this lack of certainty and the resulting time delays can make life very difficult for a potential developer looking to purchase the right site.

That’s why it is highly advisable to invest in a professional pre-purchase feasibility study.

The amount of bureaucratic red tape to cut through in order to get a proposed property development off the ground can be incredibly daunting for a first timer.

Even seasoned developers can come up against unexpected restrictions and planning regulations that seem absurd.

In Victoria for instance, every parcel of land is affected by the State Government’s ResCode planning policy, local Council’s development control plans, Council policies and resolutions, Council tree policies and sometimes regional environmental planning policies.

Other authorities such as Melbourne Water, which imposes flood overlays across every Melbourne suburb, as well as local water and sewerage authorities and Vic Roads also have a say in potential developments and how they can proceed.

If that isn’t enough hoops to jump through, you need to keep up to speed on ongoing amendments to legislation, as these are a proverbial moving target.

Then of course in addition to all the above requirements, each individual site’s own characteristics need to be considered.

Even though the Council controls state that three units may be able to be built based on the site area, local factors such as neighbour’s setbacks or the streetscape and neighbourhood, land slope, orientation, storm water drainage, easements and vehicle access, may all conspire to restrict the actual number of dwellings on the site to just two.

Of course, if you have paid a premium price thinking you are getting a three unit site, only to find out after the fact that you can only get two dwellings on there for whatever reason, the economics of the whole venture will change and you could find yourself losing money.

With town planning, knowledge is power and as with all forms of investment, the more accurate the information you have the more potential you will have to make good economic returns. Without detailed town planning advice at the pre-purchase stage, the success of your next development could well be like playing the lottery; very hit and miss.

It’s not uncommon for what clients would consider a relatively straightforward application, such as for a dual occupancy, to be held up in council for over a year due to seemingly minor issues raised by neighbour’s objections, or a local councillor who takes a disliking to the project.

A good town planner working in conjunction with your architect, could forewarn you of any possible points of objection to be raised by neighbours and with this insight, coordinate a design that has greater potential for faster council assessment.

The importance of this cannot be underestimated because many developers have lost large sums of money and unfortunately some have even gone bankrupt because they have not had the financial capacity to cover interest repayments over an extended period of time as their applications sat, unheeded, in some council officer’s “in tray”.

Basic checks on a site

Before going too far with feasibility studies, there are some preliminary investigations you should do.

The good news is this research can usually be done with a simple phone call or visit to the local council.

ZoningThe first step is to check the zoning of the site.

Zoning gives land a designation under that State’s planning scheme with regard to what it can be used for.

Each zone has particular rules as to what can and cannot be done with the land and also what requires development approval (planning permit) before it is done.

A basic example is residential zoning.

Providing the block is above a certain size and the building takes up less than a certain percentage of the land you can build a house with just a building permit.

However, if the block is particularly small or the proposed house particularly large or you want to build multiple dwellings, you may be able to proceed, but you will need a development approval (planning permit).

Zoning terminology and regulations vary from state to state so you will need to check specifically with the Council concerned for exactly what is allowed.

Specific site constraints
The second aspect you need to check is if there are any impacts on the property that might affect its viability as a development site such as;

• Flood issues
• Heritage issues
• Conservation issues
• Main roads issues
• Are sewerage and water services provided or about to be provided?

Walk the talk

No matter how good a site might look, it is critical that you conduct thorough research into all aspects of the property in order to uncover not only the good points, but more importantly any potential limitations.

One of the best ways to familiarise yourself with a prospective site is to physically walk it from boundary to boundary and check it out for yourself.

Verify the exact location of local roads, railway lines and anything nearby that detracts from the site or the saleability and rentabilty of the proposed finished product you intend to build.

When doing this basic legwork, it is important to visit at different times of the day.

While it might be a quiet area on weekends, during morning and afternoon peak hour the traffic noise could be a real turn off for potential tenants and buyers.

One site I considered recently appeared to be all good on paper, but what looked like a park next door was in reality a reserve left for the flight path for Jumbo jets to Tullamarine airport, which was over 6 kilometres away.

Five tips to find the right site

Buy a property that is suitable for both resale and long term holding for rental. This gives you flexibility in a changing market so that if you are unable to sell the development you will have a good long term investment.

Always buy properties in a good location – well located properties still sell in bad markets while poorly located properties may not.

Buy at a price that assures you at least a 15% margin on development costs – this not only gives you a fair return, but also protects you against a fall in the market.

Don’t rush into the first property you see – take your time to find the right property. The more you look, the better you will get to know the market and the better your judgment becomes. If it takes a year to find the right property, then give it the whole year. Don’t be forced into the property market by fears of missing the boat (or boom).

When you have found the property you want – act quickly. Time is of the essence when it comes to property development and if you spot a site that is below market value, chances are another developer might be just around the corner waiting to strike. Don’t allow procrastination to get in the way of a good deal and a great opportunity.

In Part 8 of our small development series, Bryce will explain how to manage risk and increase your chance of success in property development.

Bryce is a property development specialist, having successfully completed many development projects for Metropole's clients. Initially working as a Project Manager at Metropole since completing his Bachelor of Project Management in 2011, Bryce now acts as a buyers agent for clients, sourcing and evaluating properties with development potential.Visit Metropole.com.au

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